PART ONE: The Reform of Tax Litigation Procedures (Patrizio Tumietto)

During the past months three points of extreme relevance have been discussed, regarding taxes - both in Italy and at an international level - that will bring important conclusions to Italian taxpayers. The three points are: The reform of tax litigation procedures; the possible re-opening of the voluntary disclosure terms; the preparatory studies for the approval of the OECD Directive - BEPS, Base Erosion and Profit Shifting.

 Given the extreme importance of the three subjects, we dedicate a short presentation to each of them.

 The provisions in matter of reorganization of the tax justice included in the Italian Legislative Decree No. 156/2016 still raise some eyebrows, at least with respect to one specific point. Nobody had the courage to face the problem regarding the professional qualification of tax judges.

The tax litigation proceeding was born as an administrative proceeding. After many years its jurisdictional function has finally been acknowledged, although the qualifications required for the members of the tax courts were not adjusted to such dignity.

In order for tax courts to gain full dignity as the other courts already do, a real reform of the tax litigation proceeding is necessary. The aim is to render tax courts (“Commissioni Tributarie”) real tax courts fully responding to the constitutional principles and to guarantee a fair trial to taxpayers and to the State itself.

It is certain that the main problem of tax justice does not regard possible incompatibilities of judges (i.e. if they are members of professional registers or in case of kinship or affinity relationship with them), but rather the impossibility to administer the tax justice through jurisdictional bodies composed of part-time judges that normally carry out another activity and that – mainly – do not have specific knowledge in tax matters.

There has been no political will to tackle the issue. This is because it was decided to privilege the economic principle of the reduced cost of tax justice rather than the duty to give the citizens and the State a fundamental service that is moreover constitutionally protected.

The recent corruption events, which happened also in the region of Lombardy, show the need for the tax justice to be handled by - properly trained and adequately remunerated – full time judges.

The tax judge is in his nature both a judge and an expert, because without these two skills he could not do his job. The legal training is fundamental, as well as the ability to read and understand very complicated provisions subject to ongoing amendments (therefore hindering the formation of established case law), and that are not of easy comprehension for someone without a specific education in this matter.

The ordinary course of study completed by a magistrate is per se not enough to become a tax judge. This is because tax is formed by two elements that cannot be separated i.e. law and economics.

Especially in corporate taxation matters it is not thinkable to be judged by someone who is not able to read a financial statement or to understand the choices of an entrepreneur that may also be relevant for tax purposes.

A positive step taken was to extend tax mediation to all tax authorities. However the limit of € 20,000 could have been raised in order to allow only cases of significant value to be dealt with by the Tax Courts.

In view of this simplification process, extending the reconciliation also to appeal proceedings as well as the fact of charging the defeated party with the legal costs are two very important aspects; the latter aspect is a good deterrent to ungrounded tax assessments or complaints.

Another relevant point, especially for taxpayers, is the need to define in a correct way the person of the “advocate”; the legislator has not correctly understood that a proceeding is formed by procedure and substance, the first can be vital considering that it could bar the discussion of the merits

As a consequence, enlarging the number of those who are eligible to be an advocate does not help to defend the taxpayers.      

A further critical element is the filing fee which leads to a further cost for the defence. Sometimes, this is absolutely illogical, especially in case of tax assessments with artificially increased values.

The taxpayer will therefore have to pay the relevant amounts in advance. This will often result in being extremely costly compared to the amount dues, if any, and that in any case will only be recovered after a long time.

There is also a positive new aspect though i.e. the extension of precautionary protection to all stages of the proceeding.     

It can be said that some steps forward have been made, but the situation cannot be considered as normal until full time tax magistrates with the appropriate education are finally introduced.

Otherwise the tax justice will remain too uncertain both for the taxpayers and for the State.